"We can end government censorship in a decade," Schmidt said during a speech in Washington. "The solution to government surveillance is to encrypt everything."

Setting aside the entertaining aspect of the source of said statement, I don't think encryption in and of itself is enough. Encryption performed by companies is useless, since we know by now that companies - US or otherwise - are more than eager to bend over backwards to please their governments.

What we need is encryption that we perform ourselves, so that neither governments nor companies are involved. I imagine some sort of box between your home network and the internet, that encrypts and decrypts everything, regardless of source or destination. This box obviously needs to run open source software, otherwise we'd be right back where we started.

but it's a big improvement, because at the moment the spying took place without google knowing it.

I see what you are getting at... But as an end user, what difference does that make to me?

Seriously, as things are now my data may be monitored by the government without anyone's knowledge.

In the "everything is encrypted" scenario, now Google will know when my data is being monitored... So what? I still won't know about it - because Google cannot tell me without committing a crime.

I will admit that it could be better if you replace Google with someone like Lavabit that chooses to shut down rather than compromise their user's security. The problem is when push comes to shove the Google's of the world will cave before shutting down - anyone who things otherwise is completely deluded...